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Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance

  • A. Lans Bovenberg

    (Tilburg University)

  • Peter Birch Sørensen

    (Economic Policy Research Unit, Institute of Economics, University of Copenhagen)

In the modern welfare state a substantial part of an individual’s tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, endogenous involuntary unemployment and retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance ina more effcient manner.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 03-07.

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Length: 42 pages
Date of creation:
Date of revision: Aug 2003
Handle: RePEc:kud:epruwp:03-07
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  1. BELAN, Pascal & PESTIEAU, Pierre, . "Privatizing social security: A critical assessment," CORE Discussion Papers RP -1407, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  3. Brunner, Johann K., 1993. "Transition from a pay-as-you-go to a fully-funded pension system: The case of differing individuals and intragenerational fairness," Discussion Papers, Series I 266, University of Konstanz, Department of Economics.
  4. Martin Feldstein & Daniel Altman, 1998. "Unemployment Insurance Savings Accounts," NBER Working Papers 6860, National Bureau of Economic Research, Inc.
  5. Stiglitz, Joseph E. & Yun, Jungyoll, 2005. "Integration of unemployment insurance with retirement insurance," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2037-2067, December.
  6. Orszag, Mike & Snower, Dennis J., 1997. "Expanding the Welfare System: A Proposal for Reform," CEPR Discussion Papers 1674, C.E.P.R. Discussion Papers.
  7. Fölster, Stefan & Gidehag, Robert & Orszag, Mike & Snower, Dennis J., 2002. "Assessing Welfare Accounts," CEPR Discussion Papers 3479, C.E.P.R. Discussion Papers.
  8. Homburg, Stefan, 2014. "The Efficiency of Unfunded Pension Schemes," Hannover Economic Papers (HEP) dp-523, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  9. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  10. Sinn, Hans-Werner, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," Munich Reprints in Economics 19859, University of Munich, Department of Economics.
  11. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
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